Precious Metals

In this candid discussion, precious metals experts Eric Sprott, John Embry and Rick Rule discuss a wide range of topics related to precious metals investing.

Platinum and palladium surged Tuesday on renewed concerns that supplies of the platinum group metals will shrink. Zimbabwe's government has given platinum producers two years to begin refining the precious metals in Zimbabwe. This means that production of platinum will drop, because mining companies are now expected to build refineries – something which they may not do, due to the real risk of confiscation and nationalisation of assets. Both metals climbed more than 1% yesterday with platinum for April delivery rising $21.10 to settle at $1,717.2/oz. Palladium for March delivery rose $12.80 to $771.40/oz. "The worry is that it's going to restrict production," said James Steel, chief commodities analyst at HSBC in New York. "That was the prime motivator for the price movement today."

Following yesterday's G-7 announcement which sent the USDJPY soaring, and its embarrassing "misinterpretation" clarification which undid the entire spike, by an anonymous source in the US who said the statement was in fact meant to state that the Yen was dropping too fast and was to discourage "currency wars", it was only a matter of time before another G-7 country stepped into the fray to provide a mis-misinterpretation of the original G-7 announcement. That someone was the BoE's outgoing head Mervyn King who at 5:30 am eastern delivered his inflation reporting which he said that "it’s very important to allow exchange rates to move," adding that "when countries take measures to use monetary stimulus to support growth in their economy, then there will be exchange rate consequences, and they should be allowed to flow through." Finally, King added that the BOE will look through CPI and relentless UK inflation to support the recovery, implicitly even if it means incurring more inflation.

From the management of a global currency war to the 1998 Committee to Save The World, QBAMCO provides an all encompassing escape into the reality our current - and future - monetary (and inflationary) world. While Brodsky and Quaintance do not expect a breakdown in global monetary oversight, they do expect fiat currency debasement to continue to mask the driver of real economic malaise and contraction - global bank deleveraging; and they do expect this process to lead to a popular loss of confidence in today’s major currencies as savings instruments – perhaps beginning in the global capital markets in 2013. What will eventually (or soon) occur will be the rare occasion when return-on-savings trounces return-on-investment, implying precious metals will outperform the great majority of financial assets (except for shares in precious metals miners and natural resource producers).

Today was simply dreadful. S&P 500 futures saw their narrowest day-session range in six months and lowest day-session volume of the year. No matter what was tried today - vol compression, EURJPY (carry) ramps, Oil stop-run - equities did not respond with any algo-driven exuberance. Stocks ended the day practically unchanged even as AAPL did its best to hold them up - filling its post-earnings gap and fading. Five things dominated the day: Gold and Silver were slammed lower early on; ECB's Weidmann slammed EUR higher early on; Oil prices surged above $97 (WTI); and then France's Moscivici spoke and retraced all the EUR's gains; and then a 3pmET rampathon in JPY. For the bulls, this is healthy stabilization; For the bears, this is a day where normal risk drivers had no impact and stocks never followed through on new highs. Credit remains pensive as renewed rises in oil prices will crimp margins (and the consumer's pocket) but none of that matters as JPY crosses remain in play.

The precious metals market appears to have found a size seller this morning. Despite record breaking demand for physical coins from the Mint, gold and silver prices hit an air pocket around 8amET but had been sold all day in Europe. We humbly suggest that his Holiness spread out his retirement selling... of course we saw a similar gap last Tuesday and Thursday as Europe's risk-asset markets continue to slide (and perhaps collateral margin calls come due). Of course, the more important questions remain: which TBTF bank will the pope end up as vice-chairman in, and which ex-Goldman Managing Director/Partner will be the next head of the Vatican bank... and incidentally Catholic Church (it appears a Canadian is front-runner, rather coincidental given Carney's recent appointment).

Whether you're aware of it or not, a great battle is being waged around us. It is a war of two opposing narratives: the future of our economy and our standard of living. The dominant story, championed by flotillas of press releases and parading talking heads, tells an inspiring tale of recovery and return to growth. The other side, less visible but with a full armament of high-caliber data, tells a very different story. One of growing instability, downside risk, and inequality. As different as they are in substance, they both share one fundamental prediction – and this is why you should care: This battle is about to break. And when it does, one side will turn out to be much more 'right' than the other. The time for action has arrived. To position yourself in the direction of the break you think is most likely to happen. It's time to choose a side.

Any trader of paper gold and silver will likely never forget the endless and certainly parabolic barrage of margin hikes that the CME imposed in the spring and summer of 2011 which had only one purpose: to break the back of the relentless anti-fiat rally in the precious metals (and which culminated with the historic May 1 take down of silver when the metal plunged some 15% in the span of seconds). Since then, perhaps as a result of initial and maintenance margins still at residual levels indicative of when the S&P was some 30% lower and some $4 trillion less in slushing global central bank liquidity, the upside euphoria in gold and silver has been decidedly hobbled, perhaps so much that the CME is now scrambling to find a whole new set of gullible investors who will obediently put their money in the paper trap, only to see a surge followed by yet another mauling from soaring margin demands. After all, the CME needs trading volume to keep the cash flow flowing - killing the paper market in any one product suits nobody. Sure enough, moments ago, the CME once again cut margins in a slew of products, most notably gold and silver, by some 10% and 14%.

Many of the banks, now predicting gold’s bull market will end in 2013, never predicted gold’s bull market in the first place. Most were bearish on gold in the early to mid years of the bull market and most only became bullish quite recently.

 Many of these banks' primary focus is short term profit, often trading profits, and therefore they do not understand the long term, passive diversification benefits of gold in a portfolio or as financial insurance.

The official lie is most effective when we want to believe the lie more than we wish to know the truth.

Platinum prices have already risen by more than 12% so far in 2013, following the same advance for all of 2012. Platinum supplies have fallen to a 13-year low as mines in South Africa, the world’s biggest producer, close and the platinum industry is in crisis due to industrial unrest, geological constraints and sharply rising costs. Global production will drop 2.7% to 5.68 million ounces, the least since 2000, according to Barclays Plc, which raised its 2013 shortage estimate sixfold last month after Johannesburg-based Anglo American Platinum Ltd. (AMS) said it plans to idle shafts.  Anglo American Plc’s platinum unit, the largest producer, last month proposed the halt of four mine shafts that would cut about 7% of global production. At the same time, demand from carmakers, the biggest consumer of the metal, will increase 0.5 percent in 2013, Barclays says.  Perhaps, most importantly investors are buying platinum at the fastest pace in three years and yet holdings of platinum remain very, very small. Global production of the metal will fall as South African output drops 3.4% to a 12-year low of 4.11 million ounces, Barclays estimates.

Exactly ten years ago to the day, Simon Black was in the Kuwaiti desert waiting for George W. Bush to ‘make his decision’. He knew it was going to happen. At the time, he was a rising intelligence officer, his head still filled with ideals of national duty from my time at West Point. It all came crashing down ten years ago today. On February 5, 2003 Colin Powell, four-star general turned US Secretary of State, made a case to the United Nations that Saddam Hussein had weapons of mass destruction. Now, we won’t bother delving into the inaccuracies of the intelligence he presented. In Powell’s own words, making that presentation to the UN was “the lowest point in [his] life” and a “lasting blot on his record.”For Black, it was pivotal. At that instant, he knew without doubt that his government had reprehensibly lied through its teeth. And if they were lying about this... what else were they lying about? As destructive as these politicians are, though, they’re easy to defeat. Individuals who take action early have plenty of options to buy precious metals, move a portion of their savings abroad to a stable banking jurisdiction, and scout out locations overseas in case they ever need to get out of dodge.

It’s curious, isn’t it?  So-called “paper gold” (a futures contract) has a price that is not only very close to physical gold, but it remains locked to it.  This is despite the fact that “paper gold” is reviled in the gold community.  Why?  What is this mysterious force that binds them tightly together?

When only a few dozen claim they understand how an economic system works we have crossed over from examining and describing a complex economic entity and into a religious cult based solely upon faith and belief.

Gold market analysts have a tougher job than other financial analysts.  It is more difficult to analyze the yellow metal than equities because quantitative measures such as yield, cash flows, balance sheet leverage, and growth rates that provide a fundamental basis for analysis do not exists for gold. The fundamentals of gold are the current purchasing power of money; expectations about the future purchasing power of money; the growth rates of various national money supplies; the volume of bad debts in the system; expected growth rates of bad debts; the attractiveness of other available investments; and the investor’s preference for consumption rather than investment.   These factors do not act directly on the gold price.  Instead, they are focused through the prism of investor preferences, which are not measurable.  The price is the ultimate measurement of how investors view these factors.   Gold presents a paradox: that which drives the price cannot be measured, that which can be measured does not drive the price.